Paying Your Health Costs in Retirement

When planning for your retirement, it’s important to consider the inflation of health care costs. USA Today reports that a 65-year-old couple retiring today would need on average $220,000 set aside in savings to pay for health care in retirement. That number can seem daunting, but there are ways to reduce and pay for your medical costs, if you are prepared.

Getting Started in a Financially Secure Retirement, by former Boeing executive Henry “Bud” Hebeler, recommends “all retirees keep a liquid reserve for all emergency expenses, which could include unexpected medical costs.” A Money Market account would work well for this type of savings. Kiplinger’s Retirement Report reminds us this reserve should not be included in your retirement investment total when calculating your annual retirement spending. It truly is only for emergencies.

Another way to build savings for health care costs in retirement is to open a health savings account, if you qualify. Susan Garland, Kiplinger’s Retirement Report editor, says, “Although you can’t contribute to an HAS once you enroll in Medicare, you can withdraw the accumulated funds in the account tax-free for medical expenses, such as Medicare premiums, drugs and long-term-care insurance premiums.” Contributions to these accounts are tax-deductible or can be made with pre-tax dollars. To qualify, your health insurance policy must be deemed to be “HSA compatible” and have a deductible of at least $1,200 for self-only coverage or $2,400 for family coverage. For more information about these types of accounts, review this information from the IRS.

Reduce your spending any way possible. Take advantage of free Medicare services, which include annual wellness exams, some screenings and some vaccines. Also, Garland suggests you “find savings each year during Medicare open enrollment by scrutinizing Part D drug and Medicare Advantage plans.”

Using home equity is an option, but tread lightly. Once you burn through loan money, you may have no other options. The best bet is to pay medical expenses by using the money as a line of credit. This way, you are only paying interest on actual expenses and drawing upon your equity slowly.

If paying for health costs during retirement still feels like an overwhelming task, be sure to ask your financial adviser, and other qualified professional about how you can best be prepared.